Madeleine Wackernagel
Official unemployment may not be as drastic as previously thought, according to the International Labour Organisation (ILO) report released last week, but levels of inequality are still abnormally high. And while there has been some progress on redistribution between the races, intra-racial inequality is growing.
“The gap between the haves and the have-nots is widening,” says Dr Azar Jammine, chief economist at Econometrix. “Otherwise, why would sales of food be underperforming sales of luxury goods?
“It is no longer only a racial issue; the distribution of earnings is becoming increasingly unequal, leading to skewed consumption patterns in favour of durable goods for the haves and away from `essential’ non-durable goods for the have-nots.”
Inequality affects poverty, as well as growth prospects. Says the ILO: “Modern economic theory has established, with strong empirical support, that severe income inequality of the type found in South Africa hinders economic growth, and that a reduction in inequality would in itself increase the rate of economic growth …
“If more impressive economic growth and development are desired, then lessening the degree of inequality would be a way of achieving them.”
On a 20-year trend, the income gap between black and white workers has narrowed but the differential between unemployed and employed blacks has been growing.
Redistribution is not simply a matter of creating more, low-wage jobs, believes Murray Leibbrandt, of the University of Cape Town’s economics department. “All this talk of a flexible labour market being the solution to all our poverty and unemployment problems amounts to nothing more than platitudes.
“Unemployment is worst in rural areas, yet most jobs are created in urban areas. Without incentives, you won’t get the jobs in rural communities; most rural people can’t just up and leave in pursuit of a job miles away in the city. And cutting wages alone is not going to do the trick.
“What we need is proper targeting, with particular emphasis on the agricultural sector, to address rural unemployment.”
The ILO found that the worst-hit group was rural women, “who deserve very high priority in the targeting of labour market and social policy. Improving the lot of African women, particularly in rural areas, would … reduce poverty, assist in human development and reduce inequality.”
According to the ILO, 53% of the unemployed live in households with no wage-earners, relying instead on social transfers and informal activities. But the rural level is nearer to 70%.
Jammine says this finding shows that lower wages in the formal sector would help to boost employment, despite union claims to the contrary, but John Kane- Berman, head of the South African Institute of Race Relations, is not convinced. The correlation between wages and unemployment may not be that clear-cut, he says.
“If real wages are held down in order to speed up the rate of job creation, we may find that not too many people are prepared to work at lower wages.
“This is certainly the case in domestic service and agriculture — often illegal immigrants perform the jobs that locals are not prepared to do because the wages are too low.”
Kane-Berman says there is evidence that a number of the officially unemployed rely on the support of a wage-earner within the household, supplementing their income with informal activities, including crime. According to this theory, the extended family system operates in the same way as the social security safety net in Europe. And it has the same effect — people on the dole are less likely to seek formal employment at low wages.
Leibbrandt disagrees: “Surely anyone would prefer a formal job to hawking vegetables on street corners? If wage employment is available, there must be some pressure to take it up. Granted, at ridiculously low wage levels, it would not be worth it, particularly if one’s costs outweighed the benefits.”
While it did not call for a national minimum wage, last week’s Labour Market Commission report highlighted particular sectors as suitable for target wage levels, especially agriculture. “Minimum wages set at appropriate levels, combined with a de- emphasis on capital intensity in most sectors of agriculture, may eliminate extremely low wages, encourage the more productive use of labour and increase total employment ….”
In this context, the commission recommended that the wage board be given the power to determine regional and local conditions and set suitable wage levels.
A sectoral policy makes sense, says Leibbrandt, but it must form part of an holistic approach, combining macro-economic, industrial and labour policy.
“Industrial policy must set out to encourage labour- intensive projects, instead of following the capital-intensive route. Then, sectoral policy can step in to address localised conditions and wages. Redistribution must form part of that holistic approach, with the creation of better jobs and training.”